Are churches being taxed?

You may have read that ERLC president Russell Moore is calling on Congress to repeal a new tax on nonprofits, including houses of worship like the churches of the Southern Baptist Convention. As Moore wrote in a recent Wall Street Journal op-ed, “A little-noticed provision in the Tax Cuts and Jobs Act of 2017 now looms over faith communities in America, raising serious questions about religious freedom and the First Amendment.” If news of this tax comes as a surprise to you and your church, you are not alone in your concerns.

The new tax is found in Section 512(a)(7) of the Internal Revenue Code, and it created a policy by which all nonprofits are taxed for the cost of parking and transportation benefits provided to employees. The intention of the new policy seems to be parity in the treatment of employee benefits between for-profit and nonprofit entities. However, the ERLC believes the impact on nonprofits as a whole and houses of worship, in particular, were both unanticipated and unintended.

In effect, Section 512 (a)(7) directs the IRS to collect a federal tax on houses of worship for the first time in American history. This is the reason a number of representatives and senators are working toward a repeal of this policy. Broad agreement is rare in Congress, but this is an issue with significant consensus. Most offices on Capitol Hill do not believe the IRS should levy taxes on their constituents’ churches.

Large legislative initiatives like the 2017 tax reform almost always come with some unforeseen consequences that are later corrected through the regular order of technical fix amendments. Rep. Mark Walker (R–N.C.) and Sen. James Lankford (R–Okla.), who both voted for the 2017 reform, offered legislation earlier this year to repeal the tax. The Walker and Lankford legislation, titled the Lessening Impediments From Taxes for Charities Act, or LIFT Act, would strike 512(a)(7) from the code. The author of last year’s reform himself, House Ways and Means Committee Chairman Kevin Brady (R–Texas), recently offered a technical fix for repeal through a manager’s amendment to a recent tax bill. These leaders are joined by many members on both sides of the aisle in support of repealing this tax.

A practical reason for repeal is the cost of this policy. According to the Joint Committee on Taxation, this tax is estimated to extract $1.7 billion from nonprofits over the course of a decade. This tax would take funds for the federal government that would otherwise be used to serve local communities and in so doing impose heavy administrative burdens on smaller organizations that have never had to file 990-T tax forms. The cost of compliance costs alone could exceed the total revenue collected from this policy.

More fundamentally, the tax policy presents a break from American precedent. The proper separation of the domains of church and state is an enduring ideal of this nation. The American people have historically refrained from directing the government to tax houses of worship in order to preserve religious liberty and prevent coercion and abuse of state power. If the federal government is granted the authority to tax houses of worship, these two separate domains will be financially enmeshed in a way that threatens religious liberty.

As Chief Justice John Marshall famously stated in the 1819 McCulloch v. Maryland ruling, “the power to tax involves the power to destroy.” Russell Moore made the ERLC’s commitment to religious freedom clear when he wrote in the aforementioned op-ed, “tax laws don’t exist to give special privileges for religious organizations. They are meant to recognize that, unlike in other places and at other times, the state here doesn’t regulate, or subsidize, the worship of God.” The tax code ought to uphold, not undermine, this fundamental principle.

This issue is a top priority for the ERLC for the remainder of the 115th Congress. The ERLC continues to call on Congress to repeal this tax on nonprofit parking and transportation benefits through any appropriate vehicle before the end of the year.